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The American Prospect - articles by authorenA More Perfect Union?http://prospect.org/article/more-perfect-union-0
<div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even"><p>The Iraq war has quietly but fundamentally changed the course of the European Union. If in recent years Britain, France, and Germany -- the EU's three most important states -- had created a delicate and unprecedented harmony over Europe's future, Britain's decision to join the war destroyed it. This dissension is playing out all over Europe: French senatorial elections this month will articulate visceral anti-Americanism that calls for combating U.S. power with EU centralization, and this America-bashing has further distanced Britain from its neighbors.</p>
<p>Due to its importance, history, and position as Europe's financial capital, Britain is vital to the European Union's future. Yet Britain has always been ambivalent about European unity because of its centuries-long attachment to the idea of “splendid isolation.” In 1955, an early British EU negotiator reportedly offered the classic British view of EU institutions: “Gentlemen, you are trying to negotiate something you will never be able to negotiate. But if negotiated, it will not be ratified. And if ratified, it will not work.” In addition to this skepticism over Europe, Britain has also repeatedly chosen its “special relationship” with the United States over a more intimate relationship with the European Union. </p>
<p>Prime Minister Tony Blair was the first British leader to fully commit to Europe. In 1997, he rejected the traditional disdain, declaring Britain's future to be in leading a united Europe. Defying the conventional wisdom of a majority of his countrymen and political colleagues, Blair favors adoption of the new European currency and has quietly advanced EU integration at home, which surprised Britons and delighted his EU counterparts.</p>
<p>The Iraq War changed everything. By supporting George W. Bush and sending troops, Blair implicitly reneged on his commitment to EU unity, choosing the traditional Washington alliance over the wishes of his new allies in Paris and Berlin. As German Foreign Minister Joschka Fischer explained, “We all know that this is about the question of Iraq, but it's also about the question of Europe.” This decision was strongly opposed at home; it severely damaged Blair's domestic position and undermined his credibility with the British people. As a result, his ability to pursue further EU integration has been sharply and perhaps irrevocably curtailed. It is ironic that Blair, Britain's most “European” prime minister, has had his electoral and political future irreparably damaged attempting to maintain Britain's special relationship across the Atlantic over a war in the Middle East.</p>
<p>Given Blair's striking Europeanist commitment, his support of the United States and not the European Union regarding Iraq represents a serious setback for EU development in general. As none of Blair's potential successors in either major British party is as committed to EU integration as he is, his political debilitation may be a real obstacle to further EU progress. This renewed intra–EU hostility has already had significant European political ramifications. French President Jacques Chirac aggressively opposed the Iraq War and called eastern European states “childish” and “irresponsible” for supporting it. A February 2003 poll showed that more than three-quarters of the French people considered his actions “courageous,” and Chirac was short-listed for the 2003 Nobel Peace Prize. German Chancellor Gerhard Schröder won a narrow re-election victory in 2002 on the Iraq issue, explicitly refusing to take part in any U.S. military “adventures,” and at a June 2004 EU summit, he shouted to Blair that their relationship was “finished.” </p>
<p>These hostilities have had explicit consequences for recent EU negotiations. First, in talks about a new EU constitution, finalized in June 2004, British officials had initially appeared committed to the larger European project. After Iraq, however, these negotiators appeared far more skeptical, demanding opt-out clauses over asylum, migration, and judicial policies in an attempt to protect Britain from the treaty rather than to commit to it. These disagreements became public in June when Chirac and Schröder attacked Blair for putting Britain's national interests before European interests, with Chirac accusing Blair of thwarting the constitution's very goal of moving toward ever-closer integration and ending the veto as a device to block progress. Britain responded that decisions over Europe's future had to be made by all 25 EU members, not by “six or two [Germany and France] or one [France].”</p>
<p>The new constitution's main achievement had been to extend qualified majority voting (allocating EU voting power based on a nation's population size rather than simply one vote per country) to several areas of European policy, rather than requiring unanimity. Britain, however, prevented the extension of this broader voting arrangement to key spheres including taxation, defense, and foreign policy, thus maintaining a veto in these areas for every EU state and preventing the constitution from becoming more wide-ranging. For example, the constitution allows for a European public prosecutor, but as a result of (mainly) British objections, he or she is limited to investigating fraud regarding EU funds, and cannot investigate other serious cross-border criminal cases.</p>
<p>The EU constitution, however, was not the only point of contention. In June 2004, Britain squared off with France and Germany again over the selection of the next president of the European Commission -- the EU's executive branch. Britain's candidate called for a European Union of more circumscribed powers, while France and Germany's candidate had a far more centralized and expansive view. Both sides vetoed the other's choice. A hostile stalemate prevailed, and several more candidates were rejected until Portugal's Jose Barroso was reluctantly accepted as the least offensive candidate to both sides, nicknamed “Mr. Nobody” by British tabloids.</p>
<p>The Iraq War also polarized Turkey's application for EU membership. Prior to the war, Turkey's application hinged on several issues, including sufficient progress on human rights and the judiciary, as well as several EU members' reluctance to integrate a Muslim state into the union. Already delicate, the membership negotiation was made more controversial when the government of Turkey, a NATO member and a traditional U.S. ally, initially offered to let Bush use Turkish bases in case of war with Iraq, incensing the anti-war EU states (the Turkish parliament vetoed the offer). Thereafter, in June 2004, Bush publicly called upon the European Union to accept Turkey's application. This enraged Chirac, who publicly told Bush to mind his own business. Today, Britain and the United States support Turkey's application as a longtime ally, while France and Germany reportedly still have reservations.</p>
<p>This EU schism cannot be laid at Britain's doorstep alone, though. The United States played a key role in creating it, both by invading Iraq and, more generally, by its shift in attitude. The U.S. view of European unity has had a long and complicated history. Following World War II and with the Soviet Union looming, the United States saw the nascent European Union as a bulwark against instability, and it supported the Franco-German efforts to create new European institutions. In addition to the munificence of the Marshall Plan, in 1952, Secretary of State Dean Acheson expressed the strong U.S. support that “the political and economic unification of Europe warrants.” </p>
<p>However, with the end of the Cold War, the United States began to see the European Union more as a competitor than an ally, a process President Bush has accelerated. His increasing willingness to choose unilateral action over multilateral action found expression in withdrawing the United States from the Kyoto Protocol, the International Criminal Court, the Anti-Ballistic Missile Treaty, and the Nuclear Test Ban Treaty. During a 2003 press conference, Defense Secretary Donald Rumsfeld gave a speech that divided the European Union into “old Europe” (France and Germany) and “new Europe” (Atlanticists) on the question of invading Iraq. Cherishing their independence, many EU states considered this an act of insensitive U.S. intervention in internal EU affairs that ignored the union's overall integrity.</p>
<p>This rupture may pose near-term problems for the EU's future. But it also represents an opportunity. The old powerhouses -- Britain, France, and Germany -- are now facing a structural challenge from a more responsive and democratic Europe. The days of tripartite domination are over. As a result of the new constitution, future EU decisions will require the agreement of more than half the EU member countries, not simply a few. The new constitution has markedly reduced both Britain's ability to unilaterally prevent integration and France and Germany's capacity to dictate the EU's direction. In fact, the bitter dissension over the Iraq War may have illustrated not simply the rifts between the major EU states but also the way forward for the EU as an evolving whole. </p>
<p><i>Sam Natapoff, a former Clinton-administration appointee, has worked at the European Parliament, the European Central Bank, and the German Bundesbank. Having completed his doctorate in political science, he is writing a book on the politics of exchange rate coordination.</i></p>
</div></div></div>Fri, 13 Aug 2004 09:21:53 +0000143772 at http://prospect.orgSam NatapoffRogue Whalehttp://prospect.org/article/rogue-whale
<div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even"><p>The white whale of American finance has returned. In January 2004, JP Morgan Chase &amp; Co. acquired BankOne for $58 billion. This merger is the latest reflection of a two-decade reversal in public policy, which invites enormous conflicts of interest within banks. It was this deregulation that led to scandals of insider trading and investor deception and deepened the 2000-01 stock-market collapse, repeating the sordid history that led to tougher bank regulation in the 1930s. This latest acquisition brings the House of Morgan full circle, reminiscent of its power in the 1920s.</p>
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Yet just as a financial Moby Dick is rising again, so, too, is a new Captain Ahab. Eliot Spitzer, New York's attorney general, is working to reform the culture of Wall Street, filling a vacuum left by a pliant Bush administration. But mergers like Morgan's make Spitzer's task more difficult, because they create multiple opportunities for conflicts of interest. </p>
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By undertaking the third-largest banking merger in American history, Morgan becomes the second-largest U.S. bank in assets ($1.1 trillion to Citigroup's nearly $1.2 trillion) and deposits ($490 billion to Bank of America's $552 billion), with some 2,300 branches and 6,000 ATMs across 17 states. Post-merger, Morgan now issues the most Visas and MasterCards nationwide (some 95 million) and holds the largest share of U.S. credit-card balances -- $125.1 billion, or 18.9 percent of the market. (2003 was the first year credit cards were used more than cash or checks in stores.)</p>
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To preserve their historic influence, generations of Morgans have fought financial regulation. In the late 19th and early 20th centuries, JP Morgan &amp; Co. was the world's most powerful bank. It was America's unofficial central bank, served as international guardian of the gold standard, and halted periodic financial panics (from which it profited). According to <i>The Wall Street Journal</i>, the "money trust" famously described by Supreme Court Justice Louis Brandeis as the greatest threat to the American economy was simply another name for J. Pierpont Morgan, the bank's eponymous founder.</p>
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Morgan exerted extraordinary government influence, particularly with the Republican Party. During the administrations of the 1920s, Morgan men routinely represented the U.S. government at international monetary meetings. President Herbert Hoover frequently phoned Morgan's CEO before breakfast. So many Morgan men, in fact, were on the U.S. delegation to the 1919 Versailles Peace Conference that some observers grumbled they were running the show. Benjamin Strong, governor of the New York Federal Reserve Bank from 1914-28 and America's most powerful central banker, began his career at a Morgan-associated bank and would likely have joined Morgan had the bank's partners not persuaded him to run N.Y. Fed instead. This Morgan-Fed connection continues today: Before President Reagan named him chairman of the Federal Reserve, Alan Greenspan served as a corporate director for Morgan. </p>
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Morgan was also the Roaring '20s emblem of securities abuse. The 1929 crash saw individual investors suffer as many banks, Morgan chief among them, favored their own stock offerings and profits over their investors' best interests. In May 1933, U.S. Senate Banking Committee counsel Ferdinand Pecora exposed how Morgan reserved shares at reduced prices for certain clients, giving guaranteed profits to former President Calvin Coolidge, Franklin Delano Roosevelt's sitting treasury secretary, the chairmen of the Republican and Democratic national committees, and the CEOs of General Electric, AT&amp;T, and Standard Oil, among others. To curb these abuses, FDR signed the 1933 Glass-Steagall Act, which prohibited commercial banks from underwriting securities, and the next year signed the Securities Exchange Act, which created the Securities and Exchange Commission to police Wall Street and prevent stock manipulation.</p>
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Since the 1980s, however, financial lobbies have done end runs around banking and securities regulation. In 1990, Morgan became the first bank to receive Federal Reserve permission to underwrite securities, provided that they remain only 10 percent of its business. In 1996, the Federal Reserve reinterpreted Glass-Steagall, raising the securities limit to 25 percent of revenues. </p>
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Regulators also indulged megamergers of banks with investment banks and insurance companies, and one another, including Morgan's merger with Chase Manhattan, Citigroup's 1998 $72.6 billion merger with Travelers, and Bank-America's 1998 $61.6 billion merger with NationsBank. And in 1999, the process begun by the Federal Reserve was completed when President Clinton and a Republican Congress repealed Glass-Steagall entirely. </p>
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Not surprisingly, as regulation has been breached, abuses like those of the 1920s have recurred. At the same time, finance's political influence in the GOP has grown. The nonpartisan, nonprofit Texans for Public Justice reports that U.S. financiers account for one-third of the 32 new Bush re-election "Pioneers" and "Rangers" (those who raised $100,000 and $200,000, respectively) since 2000; a former Morgan regional chair and a Morgan consultant were major Bush fund-raisers in 2000, with the latter achieving Ranger status in 2004. More generally, the financial, insurance, and real-estate sectors favor Republicans, splitting their 2004 political contributions 61 percent to Republicans to 38 percent to Democrats.</p>
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Moby Dick requires a nemesis. For Morgan, Ahab has often been governor of New York, has often become president, and has twice been named Roosevelt. The historic battle began in 1901, between J. Pierpont Morgan and Theodore Roosevelt, who was governor of New York before becoming president. Roosevelt harpooned Morgan early, prosecuting Morgan's Northern Securities Company for antitrust violations and forcing it to break up in 1904. Morgan hated Roosevelt so much that the mere mention of the latter's name made the banker explode, "God damn all Roosevelts!" </p>
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Ironically, Morgan was responsible for educating the next Ahab. Morgan helped purchase land near Boston for the prep school Groton, where FDR first studied his cousin Teddy's exploits. As president, FDR specifically targeted Morgan via the Glass-Steagall Act. J.P. Morgan Jr. reportedly so loathed FDR that his grandchildren were told not to mention the president in his presence and Morgan's servants removed photos of FDR from the morning paper. </p>
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JP Morgan Chase's newest Ahab, Eliot Spitzer, is said to have his eye firmly on the New York governor's mansion. Echoing the Rooseveltian view that finance must be controlled rather than liberated, Spitzer has forced Morgan and other top New York banks to pay huge fines for their abuse of the financial markets, including a $1.4 billion collective settlement for Wall Street's 10 largest firms. As a result of Spitzer's relentless investigations, Morgan has surrendered numerous settlements, including $135 million for assisting Enron, $80 million for biased stock research, and $25 million for offering insiders improper access to initial public stock offerings. </p>
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Morgan has always flourished when allowed free rein, and its recent merger has given it concentrated power reminiscent of its founder. But a new Ahab is on the hunt.</p>
</div></div></div>Fri, 05 Mar 2004 19:50:47 +0000143281 at http://prospect.orgSam Natapoff